Fraudulent ‘Phoenix’ Activities

Fraudulent ‘phoenix’ activity occurs where a company deliberately liquidates to avoid paying creditors, taxes and employee entitlements. The perpetrators transfer the assets to a new entity, and continue operating the same or a similar business with the same ownership.

Phoenix activity has impacts on the business community, employees and contractors, the government and the environment, including:

non-payment of wages, superannuation and other entitlements

getting an unfair competitive advantage over other businesses

non-payment of suppliers

loss of government revenue and increased monitoring and enforcement costs

avoidance of regulatory obligations.

Whether you are a business dealing with other businesses, or a contractor or employee, there are signals to look out for that may indicate a company is participating in, or about to participate in, fraudulent phoenix activity.

These include:

the company is able to seriously undercut other contractors

workers are pressured to take leave

workers have their employment status changed from permanent to casual

workers are underpaid or paid irregularly

superannuation payments are not made

equipment, machinery and uniforms are not replaced as needed

company owners or directors enjoy an extravagant lifestyle that doesn’t appear to match their income.

Other signs may indicate a new business is the result of phoenix activity, such as:

The directors of the new entity are family members of the director of the former company or are close associates, such as managers, of the former business.

A similar trading name is used by the new entity.

The same business premises and telephone number (particularly mobile number) are used by the new entity.

You should be aware of the early signs of phoenix behaviour so you can protect yourself.

What you can do:

Contractors and sub-contractors
If you are a contractor or sub-contractor:

confirm the entity is registered and its Australian business number (ABN) You can confirm an ABN is valid through ABN Lookup.

ask for references

do a credit check on the entity

complete an online search for any adverse media reports.

Employees
Check with your super fund to make sure your super payments are being made by your employer.

If your employer changes its name, changes information on your payslip or doesn’t pay you regularly, you should ask why. If you have concerns you can contact the Fair Work Ombudsman.457 visa holders
If you are working in Australia on a 457 visa, you must be working for the business that sponsored your visa. If you are working for a business that is not your sponsor business, you may be missing out on employee entitlements or being paid less than the award rate.

Tackling fraudulent phoenix activity
We are working with other Australian Government agencies to stamp out fraudulent phoenix activity, to maintain a level playing field for business and protect the Australian revenue system.

The Inter-Agency Phoenix Forum is a key component of the Australian Government’s commitment to addressing fraudulent phoenix activity. The forum was established to bring together government agencies to share intelligence, and identify, design and implement cross-agency strategies to reduce and deter phoenix activity.Phoenix Taskforce

The Phoenix Taskforce brings together key federal and state agencies to expand these activities by developing and using sophisticated data matching tools to identify, manage and monitor suspected fraudulent phoenix operators. Phoenix Taskforce agencies support businesses that want to do the right thing and will deal firmly with those who choose not to meet their obligations.

The current membership of the Phoenix Taskforce is (in alphabetical order):

ACT State Revenue

AUSTRAC

Australian Securities and Investments Commission

Australian Taxation Office

Adjudicator Registrar & Director Contractual Development

Clean Energy Regulator

Commissioner of State Revenue VIC

Department of Employment

Department of the Environment

Department of Fair Trading NSW

Department of Immigration and Border Protection

Department of Treasury and Finance SA

Fair Work Building and Construction

Fair Work Ombudsman

NSW Police Force

Office of State Revenue NSW

Office of State Revenue QLD

Office of State Revenue WA

Tasmanian State Revenue

Territory Revenue Office NT

The Phoenix Taskforce will work with the new Serious Financial Crime Taskforce to share intelligence and information between partner agencies and facilitate identification, management and monitoring of suspected criminal behaviour.

Director penalty regime
Legislative changes to the director penalty regime were enacted in 2012, supporting the government’s commitment to maintaining the integrity, equity and fairness of the tax system. These changes can lead to company directors being personally liable if they don’t ensure their company meets certain tax obligations or, alternatively, goes into liquidation or voluntary administration if it can’t meet those obligations.

In more serious cases, confiscation of personal assets may occur if liabilities and employee entitlements remain unpaid.

Case study: jail time for phoenix operators

A Perth-based earthmoving, garden supplies and property development business created bogus payment summaries, moved employees between related companies, and failed to remit amounts withheld from employees’ wages to the ATO. The business owner then deregistered the (non-compliant) companies to reduce the risk of detection by authorities.

The principal company director was sentenced to five years and three months jail for defrauding the Commonwealth of $6.7 million in unremitted taxes. He was also bankrupted following an investigation into his personal tax affairs.

A number of other people associated with this fraud have also been prosecuted and jailed, including a former tax agent.

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